Is Renter's Insurance a Good Deal?
People who buy homes usually must purchase homeowner's insurance under the terms of their mortgage, but if you rent, you face no such requirement. Your monthly bills probably already include rent, water, electricity, phone, cable, so you might be reticent to add another bill, renter's insurance, to the pile. A basic policy, however, can come with a surprisingly low premium and often is well worth the price when you consider the cost of replacing everything you own after a fire or burglary.
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Identification
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Renter's insurance policies come in two basic types: "actual cash value" policies will provide you the cash value of items, minus depreciation, while more expensive "replacement cost" policies pays the full cost to replace your items. You also can specify in your policies what type of loss will be covered -- fire, windstorm or theft, for example -- or you can opt for an inclusive "all peril" policy. Most policies will not cover flood damage to your belongings, and some policies also will not cover property losses that occur outside the home, such an item stolen from your car. Additionally, renter's insurance will cover your liability if someone is injured at your home. Some policies also will cover additional living expenses if you are displaced from your home after a fire or other accident that leaves your home uninhabitable.
Cost
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A renter's insurance policy on average will cost you between $15 and $30 per month, according to the National Association of Insurance Commissioners. The New York Times reports that a "replacement cost" policy generally carries a premium about 10 percent higher than an "actual cash value" policy. Minimum coverage levels usually are around $25,000, and you can opt for more coverage, often up to $50,000, if you need it. Policies usually cap the amount of coverage on specific items, such as jewelry or a fur coat, so you also might need a floater policy for full coverage of valuables, the Insurance Information Institute reports. You might be able to reduce a policy's cost if you show risk mitigation measures -- installed smoke alarms or burglar alarms, for example -- or if you use the same supplier from which you have another policy, such as your car insurance.
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Considerations
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If you rent, your landlord's insurance policy likely covers structural damage to your home but offers no protection for your personal property. Therefore, without renter's insurance, you have no protection for your belongings. Even if you don't own many expensive items, your basic possessions such as your wardrobe, electronics and appliances can easily add up to thousands of dollars in value, according to the NAIC. Consider how much it would cost you to get back on your feet if every one of your possessions was stolen or destroyed overnight. Even for the tightest budget, the few hundred dollars a year you pay for a basic policy is a small price for that protection, not to mention protection from the costs of an expensive lawsuit should, say, someone get bitten by your dog.
Evaluation
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If you want to clarify whether renter's insurance is a worthwhile investment, compile an inventory of your possessions and estimate their value. Insurance suppliers such as State Farm and Geico have free tools on their websites that let you estimate what your premium would be, depending on how much coverage you want. Should you opt for coverage, you can keep that inventory list, along with photos of your possessions, in a safe spot away from home, such as a safe deposit box at the bank. Having that list will make it quicker to file and receive payment from your claim in case of a disaster.
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References
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